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CFD trading examples

See how CFD trading works in practice, with step-by-step examples on both long and short positions.

All trading involves risk. Losses can exceed deposits.

When you buy or sell a contract for difference (CFD), you are agreeing to exchange the difference in the price of a market from when you open your position to when you close it. At first glance, that can seem more confusing than a traditional trade – so here are some examples to guide you through opening and closing positions on BT and the FTSE 100.

Buying BHP

Say BT has an underlying market price of 314.6p, with a sell price of 314.5, and a buy price of 314.7.BT’s next earnings announcement is fast approaching, and you expect it to be good news. You think the company’s share price will go up, so you buy 2000 share CFDs at 314.7. This is the equivalent of buying 2000 BT shares.

Because CFD trading is a leveraged product, you don’t need to put up the full value of these shares. Instead, you only need to cover the margin, which is calculated by multiplying your exposure with the margin factor for the market you are trading.

So if BT has a margin factor of 5%, then your margin would be 5% of the total exposure of your trade (2000 share CFDs x 314.7p = £6294), or £314.7.

If your prediction is correct

When BT announces its results, it’s clear the company has had a successful quarter – and as you predicted, its share price climbs. You decide to close your position when it reaches 354.3, with a buy price of 354.4 and a sell price of 354.2.

You reverse your trade to close a position, so you sell your 2000 CFDs at a price of 354.2.

To calculate your profit, you multiply the difference between the closing price and the opening price of your position by its size. 354.2 – 314.7 = 39.5, which you multiply by 2000 CFDs to get a profit of £790.

Just remember that you’ll also need to pay a commission fee, any overnight funding charges, and capital gains tax on your profits.

If your prediction is wrong

BT’s results are worse than expected, and its share price immediately falls. You decide to cut your losses and sell your 2000 CFDs at 288.7.

Your position has moved 26p against you, meaning you make a loss of £520 (in addition to your commission fee, and any overnight charges).

Buying BHP: example trade

 

Example CFD trade

Underlying price

314.6

Sell / buy price

314.5 / 314.7

Deal

Buy at 314.7

Deal size

2000 CFDs

Margin

£314.70

Stamp duty

None

Commission

£20

Other potential charges

You’ll have to pay CGT on any profits you make, and an overnight funding charge if your position is open over more than a single trading day.

Closing price

Sell at 354.2

Sell at 288.7 

Calculation

354.2 – 314.7 = 39.5

2000 CFDs * 39.5 = £790

790 - £20 commission = £770

288.7 – 314.7 = -26

2000 CFDs * -26 = -£520

-£520 – £20 = -£540

Profit / loss

£770 profit

£540 loss

 

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Selling the FTSE 100

The FTSE 100’s underlying price is 7400.5, and our price is 7400.0 to sell or 7401.0 to buy.

You anticipate that an upcoming interest rate announcement from the Bank of England (BoE) will negatively impact the index, so you decide to sell five contracts (the equivalent of £50) at 7400.0. The FTSE 100 has a margin factor of 0.5%, so you need to deposit ((£50 x 7400) x 0.5%) £1850 as margin.

So if BT has a margin factor of 5%, then your margin would be 5% of the total exposure of your trade (2000 share CFDs x 314.7p = £6294), or £314.7.

If your prediction is correct

The announcement is a disappointing one, and the FTSE drops to 7353.5, with a buy price of 7354.0 and a sell price of 7353.0. You’re ready to secure your profit, so you buy five contracts at 7354.0.

Because this is a short position, you minus the closing price (7354.0) from the opening price (7400.0) of your position to calculate profit, before multiplying by its size (5 contracts x £10 per contract = £50).

7400 - 7354 = 46 points, which you multiply by £50 to give you a profit of £2300. You don’t need to pay commission on indices CFD trades, as our costs are included in the spread – but you will still have to pay any overnight funding charges and CGT.

If your prediction is wrong

The announcement proves positive, and it gives the index a boost. You decide to cut your losses when the market hits 7429.5, with a buy price of 7430.0.

The price has moved 30 points against you. This gives you a loss of £1500, as well as any overnight funding charges.

Selling the FTSE: example trade

 

Example CFD trade

Underlying price

7400.5

Sell / buy price

7400.0 / 7401.0 

Deal

Sell at 7400.0

Deal size

5 contracts (at £10/contract)

Margin

£1850

Stamp duty

None

Commission

$0

Other potential charges

You’ll have to pay CGT on any profits you make, and an overnight funding charge if your position is open over more than a single trading day.

Closing price

Buy at 7354.0

Buy at 7430.0

Calculation

7400 – 7354 = 46

50 * 46 = £2300

7400 – 7430 = -30

50 * -30 = -£1500

Profit / loss

£2300 profit

£1500 loss

 

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